A guide to how we assess risk for income protection

By: Nic Smit – Head of Product and Pricing at FMI (a Division of Bidvest Life Ltd)

Our new approach to contract workers

Your occupation and how you earn your income are not the same thing. For example, you might be an accountant by occupation, but you could earn an income by either working as a full-time employee, as a freelancer or by owning a business.

At FMI, we call how you earn your income your occupation status. In the past most of our applicants were either full time employees or self-employed, but we have seen an increase in applicants who don’t fit neatly into either of these two boxes – which we refer to as unorthodox occupation statuses.

In the fourth article in this series, we discussed why people with unorthodox occupation statuses are less likely than those in traditional work statuses to be able to take out an income protection policy. Essentially, insurers believe that when you have an unorthodox occupation status, you are less likely to be working consistently – a critical requirement to provide income protection cover.

A growing number of our applicants work as contract workers, which we would consider an unorthodox work status. The traditional underwriting approach means that many of these applicants are not able to protect their income. We have updated our approach to contract workers so that more individuals are able to take out income protection cover. How have we done this?

• We have made the language we use to underwrite contract workers consistent. At FMI, a contract worker is someone who is employed to work for an employer under a fixed term, temporary or project employment contract (i.e. any employee not employed under a permanent employment contract). This excludes those who provide services not through employment contracts but rather through quoting for business and then entering into a non-employer contract. These applicants require a different approach which we have developed and will explain in a future article. By being specific about who we deem is a contract worker, itclears up much of the confusion during the underwriting process.

• We have developed a process specifically for contract workers with clear terms. The traditional approach to underwriting contract workers allows for cover where the applicant has worked for the same employer on multiple contracts. This approach does not allow for applicants who have worked for multiple different employers or who have periods where they did not work. We have designed a robust process that allows for these different factors.

• We have a range of different product options for contract workers. The traditional approach to underwriting contract workers results in a binary outcome – either full income protection cover is granted, or cover is declined. This results in any contract worker that doesn’t fit neatly into the insurer’s definition of a good risk being unable to take out cover. At FMI, we can offer a contract worker full income protection, income protection with specific clauses, or Event Based cover (which we described in the third article in this series). Having a wider range of options, together with a clear underwriting process that can assess a contract worker across multiple scenarios, opens up income protection to a wider range of contract workers than ever before.

A good example of the advantages of our new approach relates to the growing trend of South Africans who work as caregivers. These individuals will often work in short- term (e.g. two-month) contracts overseas, return home to South Africa for a short period while not working, and then return overseas to repeat the process. Our new approach would usually allow these individuals to take out Event Based cover, where the traditional approach is unlikely to offer any cover. When you consider that a temporary disability would prevent them from travelling to take up new contracts and earning an income, we are now able to cover a significant risk that previously could not be covered.

This is just one area we’ve been working on to develop solutions that meet a changing work force, so that more South Africans are able to protect their income.

Look out for the next article in this series where we unpack how we’re adapting how we assess risk to give cover to more freelancers.